GBP/JPY has been consolidating since mid-January after it made a low on the year near 175.75. The 4H chart shows the market trading in a descending triangle since then.
We can also see the price is still trading under the 200-, 100-, and 50-period SMAs. This shows that there is bearish bias within this consolidation.
This week, we are seeing a third attempt at breaking the 175.75 lows, and so far, we only saw a brief crack before buyers came in and pushed GBP/JPY back towards 177.
The GBP/JPY is bearish. The consolidation has bearish bias. Only a rally above 178 should put the pressure back to the highs in this consolidation, but the bullish outlook should be limited to the 180-181 area, which would still be within the range of consolidation.
The Bank of England will be meeting up on Thursday (2/5). The last time they met to vote on monetary policy, the vote was a unanimous one to hold the official bank rate at 0.50%. This was a more dovish vote count than the 7-2 result in the past 5 meetings, with 2 votes for rate hikes.
Anticipating a dovish BoE should nudge the GBP/JPY to the downside below the triangle, but we shouldn’t expect any major extension to the downside until after the event risk.
To the upside, price should not bounce back above 178 ahead of Thursday’s BoE statement.
We should also pay attention to USD/JPY for clues to JPY-strength/weakness.
The USD/JPY broke below its recent descending triangle support, and has exposed the 115.85, January-low, down to the 115.56, Dec. 2014-low. The 4H chart shows that price has pulled back after the breakout but respected the triangle so far. If the USD/JPY closes below 117.00, we should consider the breakdown confirmed. In this scenario, we should also anticipate the breakdown in GBP/JPY’s descending triangle.
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